Mostly Voices [0:00]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. A different drummer.

Mostly Mary [0:18]

And now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor. Broadcasting to you now from the comfort of his easy chair, here is your host, Frank Vasquez. Thank you, Mary, and welcome to episode 98 of Risk Parity Radio.

Mostly Uncle Frank [0:43]

Today on Risk Parity Radio, it is time for our weekly portfolio reviews of the six sample portfolios that you can find at www.riskparityradio.com. But before we get to that, I'm intrigued by this, how you say, emails. And our first email today comes from JB. And JB writes, hello Frank, thank you for the outstanding podcast. I love the sound bites you drop in.

Mostly Voices [1:14]

Yeah, baby, yeah. I make you laugh. I'm here to amuse you.

Mostly Uncle Frank [1:21]

I will be retiring from the federal government in a couple months. I'm trying to figure out how to allocate my Thrift Savings Plan assets into a risk parity portfolio. I have $1.5 million in regular TSP with 25% in the C Fund, 10% in the I Fund, 35% in the S Fund, small cap but not really, it is more of a mix of small and mid-cap stocks, and 30% in the G Fund, short-term treasury bills. I have no money in taxable accounts. I was thinking I could start withdrawing from TSP into a taxable account up to the taxable limit in my tax bracket. This would allow me to start balancing into a gold ETF and a long-term treasury ETF. But this really would be a trickle of money compared to the overall portfolio. I could also potentially do these withdrawals into a Roth IRA as a transfer. I will likely not need much of these funds since my pension will cover my monthly expenses almost completely. Is my thinking correct here? And do you have any suggestions? Thank you again for making these podcasts. They're the ones I can't wait to hear each week. Ain't nothing wrong with that. I'm working my way through them from the beginning while keeping current with the latest release. Sign JB. All right, JB, well, it looks like you don't need the cash because you have the pension. So I think probably your best next move is to actually start a traditional IRA and move some of the TSP assets into that, which will then allow you to buy whatever you want without triggering any tax consequences. And then from there, you can convert parts of your TSP into the Roth or parts of the traditional IRA into a Roth or bring it out into taxable. But I think that would give you the most flexibility without having tax consequences. You will need to look at the rules for withdrawing and rolling over out of TSPs. I am not an expert in that, but I'm aware there are some things you need to do that might be a little bit different if you were dealing with a 401k. But if you could do that and then push your withdrawals into the year after you retire so that you are not incurring more taxable events while you're still earning income from your job, I think that'll put you in the best light or situation for going forward and then you can structure your portfolio however you want once you've got some money into that traditional IRA. We had the tools, we had the talent. All right, next email is from Brian. Brian E. Brian E. writes, subject, more data. Frank, very much enjoying the podcast and I'm up to episode 70 or so at the moment. Thank you for sharing what you have learned and letting us see your thought process on different topics. I agree as one ages and thinks of their heirs potentially having to navigate more stormy seas ahead, we also seek to pass on what scraps of wisdom we can. Somebody say scraps? A box of scraps maybe?

Mostly Voices [4:47]

Tony Stark was able to build this in a cave with a box of scraps!

Mostly Uncle Frank [4:55]

I am reading William Bernstein's the Intelligent asset allocator, and some of his examples really drive home the point that which most folks think is enough historical data is likely woefully insufficient, but you already knew that. What tantalized me the most was that normal asset correlations change during certain events and that correlations can begin trending in new directions over time. Using Portfolio Visualizer, I noticed a lot of asset data goes only back to the 1970s, and I'm wondering if We are short changing ourselves from more history with which to study those infrequent moments when correlations fail us. I am comfortable with spreadsheets and enjoy analyzing large amounts of data. Bernstein suggested accessing the SBBI, but when I investigated digital access, it was either restricted from the general public or required a costly investment. Someone suggested investigating the public library system, and unfortunately, I did not find a library with digital access to database. While I did find physical books for the SBBI for given years, I imagine it might take an unfathomable amount of time to transcribe those into a digital format. I would have guessed digital access to downloadable data for all the history one might want would have been readily available on the internet somewhere. Do you know good places to find historical asset data not limited to the SBBI? Much appreciated, Brian. Well, thank you for that email, Brian. Yeah, there are a couple of places you can look, but getting data before 1970 and then before 1926 can be difficult. One place to look, and I link to this in episode 73 and we'll link to it again, is Big Earn has created a spreadsheet on Google Docs that goes back to 1871. that covers the basic stock market, treasury bonds, and gold. If you want to take a look at that, and that might be helpful for using data for that. I would have to say that the gold data is more meaningful when it's post 1971 because the dollar went off the gold standard and so gold began floating and became much more different. than what the dollar is. Before that, there's a high correlation between the value of the dollar and gold, so it doesn't have the same kind of impact that it did in previous decades or eras that it would today. I'm also aware from interviews of Bill Bengen, the godfather of the 4% rule, he's coming out with more information later this year. I don't know what form that'll be in, whether it'll just be in a book, or whether it will be with more data sets. But what he's been doing is analyzing larger data sets with more asset classes because what he was looking at back in the 90s was simple stock bond portfolios, namely stocks S&P 500 really on one side and intermediate treasury bonds on the other side. And what he's talked about is that he's also going to have Precious metals and commodities and other things in this new data, which did reveal that improving your diversification will improve your safe withdrawal rates. And he was saying last interview I listened to that based on what he saw going from three to six asset classes raised the safe withdrawal rate in the portfolios he was analyzing from 4.5% to 4.9%. which is significant. So I'm hoping that that will also give us some data. The other place to look for data is something called the DFA Matrix Book. Now DFA is an advisory service. Basically they create funds, but they generally only sell them through advisors. That's their business model, although recently they've had to create some ETFs to get out there and compete. because their business model is not working as well in the era of no fee trading. And so they still have what is called the Matrix Book. Unfortunately, it is not released directly to the public at first. It's only released to their advisors and a few select other individuals. However, you can find older versions of that online. I'll link to one that I found from 2016. You can probably find others that do have that data that you can see. So I found one from, say, 2016, which obviously has all the data in it going back as far as they can go. And a lot of that data does go back to 1926. Unfortunately, that is not helpful in terms of not having to input things, but at least you have some source of that data to look at. Another place to find some data or some analyses of the past hundred years is to go listen to the episodes 53 and 55 and then look at the show notes for those two episodes. They concern something called a dragon portfolio with links to papers that had some analyses of that. Fortunately, it's really just the analyses for the most part and not the raw data, but that will give you a good idea as to how these asset classes have correlated or not correlated over time. Thank you for that email. Next email comes from, I'm going to pronounce it Beyot S. It's spelled B-E-A-T. Beyot or Beyot seems to be probably the right pronunciation, but it could be Beat. I'll just leave it alone. But the email says, hi Frank, do you listen to the Meb Faber podcast? I guess is the way he pronounces his you may be interested in the latest episode as this guest discusses the 100 year portfolio. It would be interesting to get your thoughts on it and how it would be an improvement over a risk parity portfolio and how one would even be able to add the additional asset classes discussed. And there is a link to a podcast with Chris Cole. Keep up the great work. Your podcast may have been the missing piece for me as I'm less than two years from quitting my job forever. And I've been trying to figure out how to create a long-term drawdown portfolio. The Golden Butterfly may just fit the bill for us. Regards, Bait. Okay, that interview is of Chris Cole, who is from Artemis Capital and is the promoter of what is called the Dragon Portfolio that I talked about. It's in episodes 53 and 55, if you want to go back and take a look at that. Now, what that is, is essentially a five asset class portfolio. Three of those asset classes are the ones we talk about all the time. They are stocks, treasury bonds, and gold. The other two asset classes that he's working with there is a commodities asset class, but not just plain old commodities, but a trend following system for commodities. and then volatility funds. I agree that those are areas that would be nice to add to a risk parity style portfolio. And we do have some kinds of funds in some of our sample portfolios for those. However, we have not found yet, because they don't exist, really good ETFs that cover these areas. And one of the areas I'm talking about are trend following commodities and volatility funds. so we're still looking for those. We did talk about a trend following fund, DBMF in episodes 55 and 57. So if you want to go take a look at, listen to that and look at the show notes for that, that is one idea. But I am looking particularly when we get to like our risk parity ultimate portfolio to find a way to incorporate these into this portfolio. I'm not sure that I agree with Chris Cole's division of how much goes in each of these portfolios. He's basically divided it 20% equally amongst all of them. That doesn't seem to me like a good way to balance out the volatility of all these things. But we don't have enough data to analyze all of that, or at least in a way that would tell us the proportions that we would need to take for each one of those right now and hopefully within the next 10 years, we'll be able to get some of these funds from these asset classes that work well enough and are cheap enough that it makes sense to put them in our risk parity style portfolios. But we'll see a little bit more of that when we adjust the risk parity ultimate portfolio Coming up next month, we're gonna make some tweaks to it to add some more of these factors in it. We will also be discussing a commodities fund that's partially trend following called COM that I wanna do an analysis for next week. And so you'll see how that is. So this is an evolving area and I think this is the way that it probably needs to go. We're just not there yet, so I'm not comfortable saying go out and buy this or that fund because a lot of these funds just haven't performed that well or are too expensive right now. But thank you for that email. And our next email is from Lauren S. And Lauren S writes, love the podcast. I too heard you on Choose FI and binged your back catalog and may have half a clue more knowledge than when I began. Spaced repetition is how I learned best and your emails and examples have greatly helped. Onward to the point. I recently watched Napoleon Dynamite for the millionth time and was wondering why you didn't use the Rex Bowdier Sensei audio clip. False modesty? Imposter syndrome? Fear of retribution from the censors does not seem to be the case. Forget about it. Hope to have a smarter question next time, but that's not likely. While I have used that clip recently, Although not since when you wrote this email, or not before when you wrote this email. But I can make up for some of that right now. Bow to your sensei. Bow to your sensei.

Mostly Voices [15:34]

Bow to your sensei. Bow to your sensei. Bow to your sensei. Bow to your sensei. Bow to your sensei. Bow to your sensei. Bow to your sensei. Boddy or Sensei Boddy or Sensei Boddy or Sensei Boddy or Sensei and

Mostly Uncle Frank [15:57]

thank you for that email. I always enjoy another chance to be silly. Come to Papa, it's Father's Day.

Mostly Voices [16:08]

Everything is proceeding as I have foreseen.

Mostly Uncle Frank [16:15]

All right, our next email is from PD and PD writes, message, thank you for all you do. Love the show, even the sound bites. It's a trap.

Mostly Voices [16:26]

I'm a few years away from retirement, but trying to figure

Mostly Uncle Frank [16:30]

out a real safe withdrawal rate with a pension. The pension is inflation adjusted and includes health insurance, retired military. It's enough to cover our essentials with a little extra after the mortgage is paid off. but it won't cover the extras, travel, charity, etc. If you're not really worried about running out of money to cover essentials but want to keep enough to enjoy life at least while we're able, how would you change your withdrawal strategy? Every calculator I use when we use a 4% rate or even a 5% rate leaves us with a large amount of money on average. That's fine but not a goal. Is there a better method? If it matters, the pension and 4% withdrawal rate will be roughly equal when I retire. Again, half for essentials, half for fun. Thank you. So I think I would use the Paul Merriman approach for withdrawing, particularly in your circumstance. And what that is, is you just look at what you have at the end of the year, or if you want to do monthly or quarterly, you can do it that way. And he just takes five percent. So as the money is growing in the account, He's taking more and more money out of his account. If it happened to go down one year, then he would take less, but he takes 5%, which is different from the withdrawal rules that go with, say, the 4% rule. The 4% rule says you take 4% of what you start with, and then you increase that by inflation each year. So that is a fixed withdrawal rate. So I would use a variable withdrawal rate in your case. Start with 5%. If it seems like you are still accumulating too much money, you can adjust that upwards as you grow older. It doesn't seem like that you're going to have much trouble given that the pension is going to cover all of your basic expenses. So you can go a little bit aggressive on these withdrawal rates and even push them out to their maximums depending on what kind of portfolio you are holding. You want to go back and analyze that, see what its safe withdrawal rate has been over the past 50 years or so, and maybe start with something like that. I would also use the retirement spending calculator over at Portfolio Charts. This is very useful because you can input not only what your portfolio is, but the way you plan to withdraw and it has some parameters you can adjust and it has some suggestions for withdrawal strategies. from some experts. And so you can fiddle around with those and get an idea for what's kind of the maximum way you can withdraw out of this thing. But I think you're in really good shape, it sounds like. And so I would not be concerned. I would think that your thought process is correct, that your real problem is not withdrawing enough money and not having a problem of not having enough to withdraw. Thank you for that email Although maybe we should ask a Dirty Harry about that. You could ask yourself a question. Do I feel lucky?

Mostly Voices [19:46]

Well, do you puun. And our last email today is from Brad.

Mostly Uncle Frank [20:10]

This is from June 7th, so we're about there as far as the emails are concerned. And Brad writes, hi Frank, I have a question for you. Quick background, my wife and I currently max out our 401 s. Max out our IRAs and she maxes out her HSA. I'm on VA healthcare. I'm in my late 40s. She's in her late 30s. We recently paid off our mortgage and we will have a fully funded emergency fund for us in place. We want to save more for other things and would like to know your thoughts on using a risk parity portfolio in place of a regular savings account since you can't make any money in savings accounts because of the rates. This will be used for helping grow wealth and also will be used for other investing opportunities. Example would be purchasing rental properties, investing in a business, etc. So there will not be regular withdrawals, but there could be a full withdrawal if needed. Would this be a good use for our intentions? Thank you in advance for your advice. Well, the answer is yes. These kind of portfolios are good for intermediate or flex goals where you're not relying on it for an emergency, but you just want to have money growing in an account that you can access whenever you need it for some large purchase or other investment or other thing like that.

Mostly Voices [21:27]

You are correct, sir!

Mostly Uncle Frank [21:31]

And this is how our eldest son, for example, saved for his down payment for his house using a golden ratio style portfolio and saved for a few years in that until he had the money and then took it out and used it for the down payment there. So this is a good idea for those what I would call intermediate term goals. Usually we're thinking something that's 3 to 10 years away or possibly away or is flexible that you could access it or not. The reason these portfolios are useful for this kind of intermediate savings is because their projected drawdowns in length is only 3 or 4 years max. And so that way you know that you can wait out a short drawdown, whereas if you were to put this all in a stock market portfolio or a 60/40 portfolio, you might have to wait a decade if that thing drops and you don't want to have to wait that long. But waiting out three or four years with a 20% drawdown max is not a big deal for something like this.

Mostly Voices [22:39]

We need that extra push over the cliff. You know what we do? Put it up to 11. Exactly.

Mostly Uncle Frank [22:46]

And that concludes our email extravaganza for today. And now for something completely different. And that's something completely different is our weekly portfolio review of the six sample portfolios that you can find at www.riskparityradio.com But we will start first with a review of what the markets did last week because I think this is becoming very interesting these days. We saw the S&P 500 go down 1.91%, the Nasdaq was down 0.28%, gold took it on the chin and was down 6.11%. Long-term treasury bonds represented by TLT were the only thing that were up, and they were up 2.3% last week. REITs represented by the fund REET were down 3.69%. Commodities represented by the fund, PBDC, were down 3%. PFF, the preferred shares fund, was flat. And we'll make another note here that VIoV, those small cap value fund that was doing so well earlier this year was actually down 4.8% last week. So it was also taking it on the chin.

Mostly Voices [24:01]

Don't be saucy with me, Bernaise. We see that Gold, though, is still the big loser.

Mostly Uncle Frank [24:04]

and is probably jealous of bonds again. We know what that sounds like. No, Mr.

Mostly Voices [24:11]

Bond, I expect you to die.

Mostly Uncle Frank [24:16]

So what about all these crystal balls we've been hearing about, about inflation and how that's going to make it bad to invest in bonds, particularly things like long-term treasuries? Crystal ball can help you.

Mostly Voices [24:28]

It can guide you, prescrying, healing, and meditation. What about those crystal balls? What do they sound like this week?

Mostly Uncle Frank [24:42]

And what have they sounded like this past month? The funny thing is you probably didn't catch that from listening to any financial media because I don't like to talk about these things. I did hear one interview of an economist who said something to the effect of, well, the bond market must be wrong. I believe in Milton Friedman. Well, the bond market doesn't care about a dead economist trying to predict these things as a fool's errand. What is interesting though, if you look at what has happened in the past month, in light of all of this talk about inflation, TLT, long-term treasury bonds, is one of the best performers in the past month. It's up 7%. That leveraged fund that we use, TMF, is up 22% in the past month. 22%. Bow to your sensei. Bow to your sensei. Now, that is why you'd be more interested in holding something like long-term treasury because it actually moves and does something. Now, what if you would have held TIPS, which seems to be the recommendation of everybody these days? What did TIPS do for you this past month? Well, TIPS were down 0.2%. So they didn't do anything for you. They did not diversify your portfolio. They're not helping you. What about a total bond fund like BND? What did that do for you this past week and this past month? For the past month, it's up 1.6%. Again, it's not diversifying you in any meaningful way. So there is a difference in what you hold. You need somebody watching your back at all times. And it relates to how well diversified or not it is from these other funds that you hold, which are mostly stocks. So does the fact that TLT is on a run of almost 6% in the past couple weeks mean that something's going to happen in the future and we know what that is? No, the point of it is we We don't know. We don't know. What do we know? You don't know. I don't know. Nobody knows. And we need to be comfortable in a state of not knowing what's going to happen next, but simply holding things that are well diversified and have shown that propensity over time because you see it coming out again, even as short-term interest rates rise. For all you holders of short-term bonds, you got taken on the chin as well. Your interest rates went up. The rates on long-term treasuries are down to about 2% now, and that's down from 2.4% just a month ago. They've fallen 40 basis points. That's the news that you haven't heard. But that's the truth of how things work.

Mostly Voices [27:49]

You can't handle the truth.

Mostly Uncle Frank [27:53]

It's not about the stories that you heard on YouTube or on the TV. That's not how things work. That's not how it works.

Mostly Voices [28:01]

That's not how any of this works.

Mostly Uncle Frank [28:05]

All right, now taking a look at what it did for these portfolios, and you'll see that the ones that had the most gold in them did the worst this week, and the ones that had the most small cap value did the worst this week, and the ones that had the most bonds did the best this week. So looking at the All Seasons, our most conservative portfolio, and this one's 30% stocks, then 55% intermediate and long-term treasury bonds, 7.5% commodities and 7.5% gold. This one was down 0.69% for the week. It is up 7.05% since inception last July. So it's just holding there nicely like a very conservative portfolio. you would want it to behave. Our next one is the Golden Butterfly. And this one had been our biggest leader for a long time, but now it's taking it on the chin a little bit because of the gold and the small cap value that's in there. No, Mr. Bond, I expect you to die! And it was down 2.82% for the week. I should say this one is 20% small cap value, 20% total stock market. 20% long-term treasuries, 20% short-term treasuries, and 20% gold. But it is still up 18.75% since inception last July, so it's still doing fine overall. Our next one is the Golden Ratio, and this one also has some exposure to gold and some exposure to small cap value. This one is 42% in stocks, 26% in long-term treasuries, 16% in gold, 10% in REITs represented by REET, which was also down this week, and 6% in cash or a money market. And it was down 2.23% for the week. It is still up 17.71% since inception last July. Our next one is our Risk Parity Ultimate Portfolio, and this one has 12 funds in it. I won't go through all of them. It's about 40% in stocks, 25% in long-term treasury bond funds, and it's got 10% in gold, 10% in REITs, 12.5% in preferred shares, and 2.5% in a volatility fund, VXX. This one was down a little less because it has less exposure to gold, and it was down 1.7% for the week. It is up 17.03% since inception last July. And you can see because this portfolio is more diversified, although its overall returns are lower, its volatility is also lower, which is why we actually remove or distribute out of this portfolio at a higher rate than we do for the golden butterfly or golden ratio, because we think that it can withstand a higher safe withdrawal rate with more diversification. All right, now we go to our experimental portfolios, our two experimental portfolios.

Mostly Voices [31:01]

You are talking about the nonsensical ravings of a lunatic mind.

Mostly Uncle Frank [31:05]

The first one is our Accelerated Permanent Portfolio. This one is 27.5% in the Leverage Long-Term Treasury Fund, TMF, 25% in UPRO, then it's got 25% in PFF, the Preferred Shares Fund, and 22.5% in Gold GLDM. This one was down 1.51% for the week, it is up 15.3% since inception last July. And this is also down on that exposure to gold, although the treasury bonds really helped it a lot this week. And then we move to our last portfolio. This is the only one that was actually up last week. And it is the aggressive 50/50. It does not have any gold in it. It has 33% in long-term treasury bonds, and we did rebalance into more of them back in March when they hit their lows. And then we have 33% in UPRO, the leveraged stock fund, and then as the ballast we have 17% in intermediate treasury bonds, VGIT, and 17% in PFF, the preferred shares fund. And this one was up 0.24% for the week on the strength of those treasury bonds. It is up 20. 21% since inception last July and has become our new leader in the portfolio race, which is probably to be expected over time because it takes a higher risk than our standardized Risk parity portfolios and certainly has been much more volatile than they have been. You have a gambling problem. But it'll be interesting to see what next week reveals. And what do we know about that? We don't know.

Mostly Voices [33:04]

What do we know? You don't know. I don't know. Nobody knows.

Mostly Uncle Frank [33:09]

But now I see our signal is beginning to fade. If you have questions or comments for me, please send them to frank@riskparityradio.com that email is frank@riskparityradio.com or you can go to the website www.riskparityradio.com and fill out the contact form and I'll get your message that way. We will be proceeding this week with some more emails and also a 10 question analysis of the ETF C-O-M. Does that make you different than most everybody else?

Mostly Voices [33:45]

The answer is yes.

Mostly Uncle Frank [33:49]

If you haven't had a chance to do it, if you wouldn't mind going to Apple podcast or wherever you get this podcast and leave it a five star review and like it and subscribe it or whatever they let you do there, that would be greatly appreciated.

Mostly Voices [34:04]

I'm asking you to do that. But what's easy to do is what? Easy not to do.

Mostly Uncle Frank [34:12]

Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Mary [34:19]

The Risk Parity Radio show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only and does not constitute financial, investment, tax, or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.